EUR/USD: the dollar maintains its refuge status

In a context of weakening risk appetite after the Jackson Hole conference, the euro remained under strong pressure against the safe-haven dollar, close to perfect parity.

The fight against inflation in the United States "will hurt American households and businesses", but giving up would be even more damaging to the economy, warned J. Powell, head of the US central bank (Fed), on Friday. The Fed chairman said from the idyllic Wyoming valley that returning to price stability "will take time" and will lead to "a long period of weaker growth" and "a slowdown in the labour market". The central banker also warned that fighting inflation would "hurt American households and businesses". The Fed wants to bring price inflation down to around 2%, and this policy will have "a series of 'unfortunate costs'", he also said.

Traders were also reminded of the ECB's rate hike projections for the next Governing Council meeting with the latest Governing Council minutes. The likelihood of an acceleration of the rate hike, i.e. the +75bp scenario in Sept., is taking shape. "The ECB has no choice but to engage in faster monetary tightening as long as inflation continues to rise," warns Fred Ducrozet (Pictet Wealth Management) in a note. "However, policy normalisation will be difficult and a stop-and-go approach seems increasingly possible. This means that the ECB could pause when the recession hits in early 2023, but resume raising rates when the economy recovers later next year."

The earnings differential between the 2 currencies remains clearly in favour of the USD for the months ahead.

"Jackson Hole thus closes the (beautiful) summer parenthesis and plunges us straight back into a period of caution," summarises Thomas Giudici (Auris Gestion).

On the statistical agenda this Tuesday, the US consumer confidence index (Conference Board) and the new job offers in the US (JOLTS) at 4pm should be the priority.

Right now, the pair is trading at $1.0029.

KEY CHART ELEMENTS
At this stage, the frank return to parity looks like a pullback. The underlying bias remains strongly bearish, below a 50-day moving average (in orange) which carries significant chart weight. In the immediate future, nervous oscillations around parity are envisaged.

MEDIUM-TERM FORECAST
Given the key chart factors we have mentioned, our medium-term view on the EUR/USD is neutral.

We will maintain this neutral view as long as the EUR/USD is positioned between support at $0.9900 and resistance at $1.0175.